SINT Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL TRADE, TRADE DISPUTES AND INVESTMENT OF THE STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

SOUS-COMITÉ DU COMMERCE, DES DIFFÉRENDS COMMERCIAUX ET DES INVESTISSEMENTS INTERNATIONAUX DU COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 5, 1998

• 1535

[English]

The Chairman (Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.)): We can begin.

Today we're studying the WTO and we have with us today on the agriculture side, Mike Gifford, from the Department of Agriculture.

Before we go ahead, though, I do want to take this opportunity to welcome our guests here from Concordia University and Professor David MacDonald, a former member of the House, who has brought them here. Colleagues, we will allow Mr. Gifford to give a 10- or 15-minute presentation, at which time we'll open it up for questions.

As you know, Mr. Gifford, the committee is doing a study on the upcoming WTO negotiations on both agriculture and services, and we've had before us already people from the Department of Foreign Affairs and International Trade and we will be continuing this study into the fall and more than likely, given the fact that the negotiations won't start until 1999, over the next year or so. And in that time, we will be hearing from different groups from across the country on their concerns with the upcoming negotiations. You were involved in the last ones and have been involved quite a bit.

In fact, I was at another international trade meeting recently within the last month and somebody from outside of government said, “You have the best damned negotiator at the WTO, Mike Gifford.” I just wanted you to know that, and those were his exact words. Welcome.

Mr. Julian Reed (Halton, Lib.): No increase in salary.

The Chairman: No increase in salary for it, though. Welcome, and we look forward to hearing from you.

Mr. Mike Gifford (Acting Assistant Deputy Minister, Market and Industry Services Branch, Department of Agriculture and Agri-Food): Thank you very much, Mr. Chairman and honourable members. I'll try to be very brief because I know you'd like to spend most of the time asking questions. What I'd like to do this afternoon very briefly is simply give you a bit of context in terms of where we're coming from as we enter this next round of negotiations in the WTO, what we're doing in the way of preparations here in Canada for the next round, and then conclude very briefly by indicating what the main issues are for Canada.

As you're aware, Mr. Chairman, we've sent to the clerk of the committee copies of some discussion papers that the government, the Department of Agriculture and Agri-Food, has distributed to the private sector, outlining the main issues for the negotiations and giving some historical context.

But just very briefly, perhaps it's hard to recall now, but back in the mid-1980s when the Uruguay Round was just starting, agricultural trade had basically been in anarchy for the best part of 30 or 40 years. Although the rules of the GATT were in theory applied to agricultural trade, in reality, because of the political sensitivities traditionally associated with agriculture, basically the rules were observed more in the breach than anything else. They were not effective. There are all kinds of country-specific exceptions. When the industrial sector decided to eliminate and ban export subsidies back in the mid-1950s, the agricultural community decided to continue to allow export subsidies.

• 1540

So the bottom line is that we didn't have the rule of law applying to agricultural trade. In fact, we had a full-scale agricultural subsidy war between the Americans and the Europeans that was obviously having collateral effects on agricultural exporters such as Canada, Australia, New Zealand, Brazil and Argentina and the medium-sized and smaller-sized agricultural exporting countries.

I think, with the benefit of hindsight, the Uruguay Round, which concluded in December 1993, really has represented a turning point in the way the international community is dealing with agricultural trade. As a result of the Uruguay Round agreement, we do have a system of effective rules that apply equally to all countries, without exception, large and small. We have a set of rules that say all terms of market access will be bound. We have a set of rules that even in some respects went beyond the industrial sector, to basically have rules on the use of domestic subsidies. We've made a start on reducing agricultural export subsidies.

The three areas of agreement in the Uruguay Round were market access, export subsidies and internal support. And the other associated agreement, which is very important for the agricultural sector, was the agreement on sanitary and phytosanitary regulations, because at the time, people recognized that as conventional trade barriers came down, such as tariffs and import quotas, basically there was a tendency for technical barriers, such as measures relating to plant and animal health, to be used potentially as disguised barriers to trade. So basically we had a four-legged stool. Those were the four elements that came out of the Uruguay Round.

Agriculture is unique. Agriculture and services are unique to the extent that at the end of the Uruguay Round in both of these areas there was an agreement to resume negotiations again very shortly—in the case of agriculture at the end of 1999, and in the case of services in the year 2000.

Associated with this, we have to remember that back in the mid-1980s we had a lot of difficulty persuading countries that they should sit down and negotiate some effective rules on agricultural trade for the first time. We've now in effect overcome that hurdle by having a built-in commitment to resume negotiations.

So what's been happening internationally? In preparation for the start of these negotiations at the end of 1999, we have in effect an analysis and information exchange going on in Geneva, where basically participant countries that are members of the WTO have been assessing the implications arising from the Uruguay Round and are starting very gingerly to explore some of the new areas that might be explored in the next round.

I think the big difference between the Uruguay Round and previous rounds of negotiations, and of the GATT, was that in previous rounds there was no recognition of the linkage between domestic farm programs and trade problems. In the Uruguay Round, for the very first time, there was an explicit recognition that it was the way countries chose to support their rural sectors that was causing many of the trade problems; in other words, the type of agricultural support programs.

One of the unique features of the Uruguay Round was the fact that the countries recognized that governments were going continue to provide support to the rural sectors, but in the future they should try to do it in ways that are less trade distorting.

Therefore, one of the things that came out of the Uruguay Round was this categorization of domestic support measures into a so-called green category, which meant that support had little or no impact on production and trade, and support that was called amber, which was having an effect on production and trade. The reduction commitments that applied to internal support only applied to the amber. If it was a green support, it was non-countervailable. Basically your government's treasuries were large enough. They could spend what they wanted on agricultural support because it was non-trade distorting. But if it is trade distorting, it should be subject to a reduction commitment and be potentially liable to countervailing duties.

• 1545

There's a linkage between domestic policies and trade measures. Trade problems in agricultural trade were explicit in the Uruguay Round and certainly would be front and centre in the next round.

Before turning to the domestic preparations, I might just note in passing that there is one other development that's happening in Geneva currently that could have implications for the next round and certainly for Canada's position in the next round, and that relates to the question of dairy export pricing.

Currently the United States and New Zealand have requested the establishment of a panel on Canada's dairy export pricing, alleging amongst other things that the Canadian export pricing system for dairy products constitutes a circumvention of our export subsidy commitments. We certainly hold the position that our measures are in conformity with our international obligations.

There is this whole question of two-price systems and whether or not there should be international rules dealing with two-price systems whereby countries in effect use whatever the tariff protection is at the frontier, whether it be a 10% tariff or a 100% tariff, to price up to the duty-paid price and then export into world markets at whatever the prevailing international price might be. Clearly the whole area of two-price systems is probably going to feature prominently in the next round.

In terms of domestic preparations, Mr. Chairman, the government has been very conscious of the fact that we need to prepare and prepare well. We need to stimulate an informed debate amongst all the stakeholders of the Canadian agrifood system, and that's why the Department of Agriculture in collaboration with our colleagues at Foreign Affairs and International Trade has circulated these discussion papers.

We're encouraging producer organizations, processor organizations, to have part of their annual meeting, or workshops that they might be having on trade, focus in on the next round of WTO negotiations. We've offered some financial support to the provinces and to the private sector to hold such symposiums and workshops. We had a very successful one in Saskatoon last fall. The Government of Quebec and the Government of Alberta both intend to hold similar symposiums this fall.

We hope all these domestic preparations will culminate in a federal-provincial-industry conference that we would plan to hold in the spring of 1999. Following on that industry-federal-provincial conference, officials would start to draft a memorandum to cabinet in order to obtain an initial negotiating mandate sometime in the summer or early fall of 1999, which would then put us in a position to start negotiations in late 1999.

So much for the domestic preparations, Mr. Chairman.

Turning very briefly to the main issues in this negotiation for Canada, there are three or four long-standing issues and a few new ones. Let me just very briefly allude to the traditional issues, to start with.

Market access is probably going to be the most contentious issue for Canada in order to establish a national consensus on a Canadian negotiating position. As you will recall, in the last round one of the breakthroughs that occurred in agriculture was the agreement to convert all non-tariff barriers into tariffs or tariff equivalents. This has established a whole series of tariff rate quotas, which is a fancy name for a two-staged tariff where basically a low duty applies on a certain quantity but above that quantity a much higher duty applies, usually what amounts to a prohibitive duty.

Since the end of the Uruguay Round it's been very clear that countries never really thought through the implications that could arise from administering a proliferation of what are, for all intents and purposes, administering quotas. If you have a two-stage tariff, clearly access to the imports coming in at the low duty is like having access to money. There's economic rent associated with getting your hands on the import permit associated with the quantity that has a low duty attached to it.

• 1550

There have been a number of ways governments have tried to overcome these problems. In some cases governments have simply thrown up their hands and said, “first come, first served”. The customs authorities simply count the product as it comes across the border, and once the quantity has been exhausted at the low duty, then the high duty kicks in.

In other cases, for example in Canada, we tend to be a bit more sophisticated than that. We try to make sure that those people in the chain who are most vulnerable have access to, in effect, these scarce import permits. So, for example, if you are a manufacturer of TV dinners or chicken pot pies, you face duty-free access of those American products coming into Canada under the terms of NAFTA. If you want to remain competitive, you have to have access to the raw ingredients at U.S.-competitive prices. We've basically made sure, in allocating these import permits for chicken, that they're given to the further processors who are facing duty-free competition on the finished product.

Although the tariff rate quotas apply to many of the poultry and dairy products, they don't apply to all, particularly the more highly processed products. It's those manufacturers of the most highly valued products who are facing duty-free competition and need therefore access to imports at U.S.-competitive prices.

Clearly, Mr. Chairman, the issues that are going to be facing negotiators and Canada in the next round are: by how much should we reduce these tariffs, both within the tariff rate quota and above the tariff rate quota; and probably most importantly, by how much should we increase the quantity that's entitled to come in at the low tariff?

Then the question is, how do you agree to reduce tariffs? Do you use a formula? I think our industrial colleagues over the years, in the GATT, through various negotiations, have canvassed the various techniques as to how you approach a tariff negotiation, and some of them are as follows.

The simplest is to request offer. But once you get past the easy tariffs, it becomes progressively harder and harder to get the other country to offer. You do a lot of requesting, but the other guy does not offer. So in the past negotiations, particularly on industrial products, countries have tried to agree on formula approaches. Should you reduce tariffs by, say, an average of 50% with a minimum reduction—for the sake of argument, of say 15% or 20%—or do you adopt a tariff formula that says basically the higher the tariff, the deeper the cut?

These are some of the issues. Clearly, in Canada we have two sides of the equation. The sectors interested in maximizing export access will be interested in maximizing tariff reductions, whereas those sectors in Canada that are more import sensitive will clearly be less comfortable with a tariff formula approach.

There is some consensus in Canada already that it does make sense, where it's negotiable, to go all the way—that is, to negotiate duty-free entry on a multilateral basis. There it's the oilseed and oilseed product sector in particular that has indicated support for this so-called zero-for-zero approach, which was used in the Uruguay Round for a number of industrial sectors and also a couple of agricultural sectors. For example, in beer there is agreement to have duty-free entry amongst a large number of countries, and there's also agreement to have duty-free entry on a large number of spirits, for example, brown spirits.

In the Uruguay Round towards the end of negotiations, we did attempt to pursue a zero-for-zero for oilseeds and oilseed products. Unfortunately it was too little too late, and at the end of the day that did not get on the table.

But certainly there is a consensus amongst primary producers and processors in Canada that going for duty-free access and eliminating all export barriers, export restrictions, is something worth pushing for. That's certainly a possibility.

• 1555

Once you get beyond the oilseed and oilseed product sector, it becomes less clear how much potential there is for negotiating duty-free entry on a multilateral basis. Clearly when you get into sectors such as grains, sugar, and dairy, the sensitivities in many, many importing countries are such that the negotiability of a zero-for-zero for those sectors is questionable.

Export assistance, export subsidies, has probably been one of the most trade-distorting techniques developed by governments. To support their agricultural sectors, there's been the provision of direct financial assistance and export subsidies. We made a down payment to start reducing export subsidies for the very first time in the Uruguay Round. There are many agricultural exporting countries that would dearly love to see agricultural export subsidies phased out and banned, as were industrial subsidies back in the mid-1950s.

As I said earlier, if governments do agree to phase out export subsidies over some negotiated period of time, then that will raise a number of issues. One of them will be that if those governments that do use direct export subsidies are going to phase them out, people are going to be paranoid about circumvention of that kind of commitment, and we'll be looking, for example, at two-price systems.

I think it's fair to say that in the last round of negotiations, there was zero discussion at the negotiating table about two-price systems in agriculture. But certainly we can almost guarantee that in the next round, particularly if we are going to end up eliminating or phasing out export subsidies, there will be a discussion of what terms and conditions should be associated with any country that basically has tariff. As I said before, it doesn't matter whether it's a 10% tariff, a 50% tariff, a 500% tariff, or a 1,000% tariff; if you have any kind of market power at all domestically, you can always price up to the duty-paid landed price. And when you export, you export at whatever the world price is. There's always going to be a big difference. Therefore the issue will be, should there be any enhanced international disciplines on the use of two-price systems?

Last of all, Mr. Chairman, in terms of the conventional areas of negotiation and domestic support, as I said, here, strangely enough, agriculture has gone further than industry. There is in fact an international commitment to reduce certain types of subsidies, those that are deemed to be trade distorting. The question will be, how much further do we reduce those support levels?

As a country sitting next door to the United States, one of Canada's major objectives in the Uruguay Round was to get an international agreement as to what constituted a non-countervailable subsidy. Therefore the decision to establish criteria to determine whether an agricultural support domestic measure was trade distorting or non-trade distorting certainly helps us in dealing with the United States in terms of potential countervailability.

I realize I'm going on, Mr. Chairman, so I'll just conclude very briefly by flagging a couple of new issues that we expect to see featured in the negotiations.

First of all are so-called state trading enterprises. These are single-desk selling and buying organizations. On the import side you have the Japanese Food Agency, which is responsible for importing rice and wheat, amongst other products. There is a similar organization in China, which is responsible for purchasing all of China's wheat requirements. The issue there is, if you have a single-desk buyer, can they in effect nullify any access commitment you might have negotiated?

But probably it's the export side that will engender the greatest discussion within Canada, because the United States and a few other exporters, such as Argentina, have clearly identified their interest in negotiating increased disciplines on single-desk selling organizations, such as the Canadian Wheat Board, the Australian Wheat Board, and the New Zealand Dairy Board. It's the contention of, for example, the United States and Argentina that somehow single-desk selling agencies have an unfair advantage over those countries that have marketing systems that are based on a so-called market enterprise system.

• 1600

There are rules governing single-desk selling and buying agencies under the GATT under the WTO. Those rules, however, have not been reviewed since 1947. Certainly, I think it's fair to say that there will be a very thorough discussion as to whether and to what extent the existing rules on so-called state trading enterprises should be modified or enhanced.

Mr. Chairman, this is the last point. I think in the last year or so it has become very clear that the benefits of science that are accruing to the agricultural sector have also caused some very practical trade problems. Here I'm talking specifically about biotechnology and the fact that increasingly, in all countries, we are benefiting from developments in science that are allowing us to develop genetically enhanced products.

Although there are very strict regulatory and approval systems in North America, nevertheless, notwithstanding the fact that consumer safety is paramount, we have managed to developed a regulatory approval process that does allow these developments in science to come before the relevant authorities, and after the necessary checks have been done, they are approved for use.

But in Europe, particularly because of the experience they've gone through with mad cow disease, unfortunately, science somehow has lost its credibility. As a consequence, Canadian canola and U.S. corn and soybeans over the last three or four years—this is now much of the production in North America—that's genetically enhanced is having great difficulty entering the European Union. This is mainly because of the very Byzantine—I guess that's the only way I can describe it—approval process that the Europeans have developed for biotech products.

As a consequence, right now, for example, Canada is effectively prohibited from exporting canola to Europe because of the fact that the genetically enhanced varieties we grow in Canada are not approved for sale in Europe. As a consequence, a trade that was worth $400 million to $500 million to western Canadian producers a few years ago is now down to zero because the European approval process for genetically enhanced products has in effect been frozen.

There's an underlying issue here. Should decisions about genetically enhanced products be made on the basis of science and on the basis that you should adopt measures that, while protecting human, plant, and animal health, nevertheless represent what's least destructive for trade, or should consumer preferences in effect overrule science?

Look at the examples in Europe. For example, in the case of growth promotants for beef, these are approved for use in Canada but they're not approved for use in Europe. As a consequence, Canadian and U.S. feedlots cannot export beef to Europe because of the use of so-called growth promotants. The Europeans say it's a consumer preference. Basically, their society would prefer not to consume these products.

The trouble is that if society determines that they have a preference not to consume these products, it becomes very difficult to discern where there's a genuine health issue and where they're basically using a health measure as a disguised barrier to trade.

So clearly, Mr. Chairman, in conclusion, the whole area of genetically enhanced products is certainly going to be up for discussion.

There is a separate agreement on sanitary and phytosanitary measures. As a practical matter, that's probably going to be negotiated in parallel with the negotiations on agriculture.

• 1605

I realize, Mr. Chairman, I've been all over the map on this. My very last comment is simply to say that in the last round, which took seven years, as you know, it is clear with the benefit of hindsight that the breakthrough that allowed the negotiations in agriculture to conclude, and in fact the Uruguay Round in general to conclude, was a decision by the European Union to reform elements of the Common Agricultural Policy. In other words, it was the capacity of the Europeans to recognize that if they did not change their domestic agricultural policies, they could not sign on to the Uruguay Round Agreement on Agriculture.

It's also noteworthy to remember, or to note today in fact, that Mr. Fischler, the European Commissioner for Agriculture, is basically saying the same thing—that if Europe, which is the world's second-largest exporter of agricultural products after the United States, wants to be competitive in the next century in agricultural products, it must reform the Common Agricultural Policy further, for two reasons.

First, it is going to expand to the east. All the former Soviet Union basically outside of Russia is expected at one point or another to join an expanded European Union. Many of those countries are potentially very competitive agricultural producers. The existing Europeans would not be able to afford a common agricultural policy that was so rich as it currently is to be applied to these new members.

The other issue is a recognition by the Commission of the European Union, Mr. Chairman, that the existing Common Agricultural Policy needs to be modified if European agriculture is going to basically grow and expand in a world where barriers are coming down in the future rather than being created.

I guess that's the story of agricultural trade for the last 50 years. Until the end of the Uruguay Round, in contrast to the industrial sector, where barriers were coming down over time, in 1986 we were worse off in agriculture, if anything, than we were 1947. We are slightly better than we were in 1986, but we have a long way to go to catch up to where the industrial sector is.

That's basically it, Mr. Chairman.

The Chairman: Thank you very much. That was a very thorough presentation. I guess over the next few months, we will be trying to glean more information from you, with your experience as a trade negotiator.

We'll open it up to 10-minute questions and answers, but before we do that, I have one general question.

This committee just finished a study on the MAI. One of the criticisms we heard from groups that came before our committee was of the secrecy behind these types of negotiations. I'm sure you've heard the criticisms these groups have had. Can you give me an idea, from your perspective as a negotiator, of how open these processes should be, or can be, given the nature of negotiations?

Mr. Michael Gifford: Yes, Mr. Chairman. I contrast the Tokyo Round, when I was a member of the Canadian negotiating team back in the mid-1970s. Basically the Canadian agricultural tariff offer, I think, was known to about three people—two in Ottawa and one in Geneva. In those days, tariffs were considered to be sort of budget-like secrets, because traditionally they were subject to reductions in budgets and negotiators treated tariff offers just like the budget preparatory process.

I think it's also fair to say that when people, especially in agriculture, began to realize that more and more of the problems of agricultural trade were directly linked to the types of domestic agricultural support programs, people began to realize that it was just impossible to treat a trade negotiation like a budget document, that basically stakeholders had to be sensitized, and that there needed to be more transparency.

So we got to the Uruguay Round, where even if the federal government negotiators wanted to keep all of what they said in Geneva secret, modern technology basically prevented that from happening, because basically when I said anything in Geneva, the next day the dairy farmers or wheat producers of Canada would hear by fax or by telephone from their contacts in Europe what their contacts were telling them the Canadians had said.

• 1620

I think as a practical matter the negotiations we've been experiencing, certainly in the last four or five years, are becoming more and more transparent all the time. In Canada's case we have a very structured consultation process, the agricultural SAGIT. The Sectoral Advisory Groups for International Trade, which report to the Minister of International Trade and the Minister of Agricultural jointly, are basically kept apprised at all times of developments.

We consult very extensively and exhaustively with the provinces all the time, because of the split responsibility between the federal and provincial governments on agriculture. We've basically made it very clear to any of the firms and primary producer groups in agriculture that the negotiators are available to consult at any time on a one-to-one basis.

That is a reality, Mr. Chairman. There are a number of specialized trade policy publications; for example, Inside U.S. Trade and Agra Europe Weekly. If you want to know what's happening on an agricultural trade negotiation, all you have to do is get a faxed copy of those publications and you know as much as the negotiators do.

The Chairman: Thank you.

Mr. Turp.

[Translation]

Mr. Daniel Turp (Beauharnois—Salaberry, BQ): I would also like, on behalf of my Party, the Bloc Québécois, to welcome the Concordia students as well as Professor MacDonald and also Professor Salee who I can see in the room and who is a colleague and a friend of mine. I hope they will find this meeting interesting. In any case, I can tell them it will be more interesting when we start discussing with the witnesses.

I would like to ask four questions, the first one being a follow-up from the Chair's. There had been debates within this Sub- Committee and within the Committee about the role Parliamentarians could play in studying the negotiating texts during negotiations. I understand that, today, negotiations are more open and less secret than before, at least than during the Tokyo Round and the Uruguay Round.

I would like to know if the Uruguay Round experience has revealed that negotiating texts could be looked at by the public if they were submitted to various groups and to industry, and if you believe that Parliamentarians, whether within this Sub-Committee or within the External Affairs Committee, could examine such documents during negotiations. You know that this has led one of my young colleagues to take his chair out of the Parliament buildings, which highlighted the issue of Parliamentary control of international negotiations, whether they be on the MAI or on future agreements with the WTO. That is my fist question.

My second question might be an interesting educational exercise for all participants. Since I represent a rural riding, I frequently meet farmers and dairy producers, and I can tell you that they have a very hard time understanding our system of quotas. And I must admit, very humbly, that I find it as difficult as them. So, I would like to know how the matter of dairy quotas is managed within the WTO negotiations? Are the quotas being reexamined or not at that time?

I would like you to explain in the simplest manner possible the system that exists at the present time because it is very important for Québec to know if it would be re-opened or not during those negotiations.

My third question is simple: Are the export credits granted by the Canadian Wheat Board considered export subsidies by our commercial partners? Are there any special groups that have looked at this matter and will it be a major topic of negotiation for the next round?

As to my final question, I'm not sure that it should be asked since you did not raise the matter in your statement. It deals with the links between those negotiations and NAFTA, as well as with the negotiation of a free trade agreement for the whole of the Americas. How are these various negotiations interlinked?

• 1615

Finally, what do you do, in your department or elsewhere, to coordinate your positions on agriculture during all those negotiations?

[English]

Mr. Mike Gifford: With respect to the first question, about when MPs can be involved in looking at the text, I think there are different types of text. Usually in the course of negotiations countries position themselves, posture, elaborate their ideas, their concerns, their interests. It can be in a plenary with 100 countries and it can also be in smaller groups.

At some point, though, the chairman of the negotiating group—for example, in agriculture, there would be a chairman of the agriculture negotiating group—has to stick his neck out and propose an approach.

For example, in the Uruguay Round, Arthur Dunkel, the director general of GATT, and prior to him, Art De Zeeuw, the chairman of the agriculture negotiating group, basically put a proposition recognizing that there were wide gulfs between, for example, the Europeans, in particular, on the one side and North America and the Cairns Group on the other. They put forward a detailed plan for an agricultural agreement.

That was tabled one night, and I swear, the next day producer groups in Ottawa had a copy of it. They leak extremely fast; it's simply impossible. I guess what I'm suggesting is that as soon as the so-called negotiating texts emerge, they are in the public domain.

Some of you might be recalling the development of the text on investment in Paris. There, basically, there was one text that was like a Christmas tree. Everybody had their own particular wording, so you had ten sets of wording to cover one sentence.

In Geneva, experience has shown that you don't develop a text that way. You basically try to get somebody to venture their hand at distilling what they think they're hearing into a negotiable text. Then you work off of a single text.

I think that's the type of text that could be made widely available to parliamentarians as soon as it's made available to negotiators, because it's certainly going to be in the public domain very quickly following the tabling of a text.

Mr. Daniel Turp: But would those texts be on the web sites of WTO, for example? Because now the MAI is on the web site of the OECD, and everyone can have access to that.

Mr. Mike Gifford: Even the WTO has gotten into the habit of putting stuff on web sites, so I would imagine—and I'm just speculating now—that certainly one of the issues will be the whole role of civil society and the need for transparency, and the need for people not to feel that because they don't have access to information there's something to be hidden.

For all those reasons I think there's going to be increased transparency. Certainly making a lot of these texts available on Internet would be a logical evolution.

I believe your question related to production and import quotas in Canada for dairy farmers. Individual producers buy quota from other producers. Because the Canadian price is higher than the world price, the benefits get capitalized into the value of the quota.

Therefore, if you wanted, for example, milk cows in Canada, you'd have to pay $12,000 or $13,000 per cow for the privilege of milking. That is the quota value associated with the production quota.

If you want to export, more and more the supply management industry wants to get into the export business, and more and more people are talking about producing outside the quote for export—in other words, leaving the domestic quota to look after domestic consumption, but producing outside the quota for export. This is the so-called optional export program.

• 1620

But I think part of your question related to import quotas, How do governments decide how to increase the size, say, of a tariff rate quota for butter or for cheese? I think here it's worth recalling that in the Uruguay Round Canada offered to do on dairy what Dunkel was proposing. For example, he was saying that access commitments, the quantity entitled to enter at the low duty, be equivalent to 3% of consumption, rising to 5% of consumption. We put an offer on the table that was equivalent to that, but the United States in its wisdom decided to put an offer in less than that. So we said we were not going to go further than the United States, so we scaled our offer back to be equivalent to that of the U.S.

So basically how much you would expect to agree to have as the size of a tariff rate quota at the end of the day would reflect your assessment as to whether other countries are in effect doing their fair share. If you're in an import position, as Canada is for dairy products, as the U.S. and Europe are for dairy products, your preoccupation would be saying there should be an equivalence of commitment relative to the size of the market between the major import markets, so therefore Europe, Japan, Canada, the U.S., when all is said and done, should have comparable terms of access for dairy products. One should not be more exposed than the other.

Some of these tariff rates or quotas are allocated to individual exporting countries, and this I think is an issue we're going to seek the advice of the industry on. There are pros and cons of agreeing to allocated tariff rate quota by country. If you're Australia or New Zealand and you export beef to North America, you benefit from having country-specific tariff rate quotas by both the U.S. and Canada. In other words, you don't have to worry about competing against Uruguayan or Argentinian beef for your share of the North American market; you've been given a country quota. Some exporters would argue that the best thing you can have is a country quota, whereas if you don't have a historical trade performance and you're a brand-new exporter, you say, “I want to be able to compete, and if all the available access has been allocated on the basis of historical performance, I as a new exporter basically don't have any access to anywhere.”

So I think one of the issues in the next round will be whether or not there should be some rules governing the allocation of tariff rate quotas, particularly whether or not there should be a prohibition against the use of country quotas and whether or not it should be available basically to all countries that are members of the WTO.

Export credits: Export credits on industrial products are subject to an OECD agreement. There is no agreement on agricultural products. There are negotiations going on in Paris to achieve this, but I think the expectation is that these negotiations will not be successful and that as a practical matter negotiation of export credits will be taken up in the next round of agricultural negotiations in Geneva and at the WTO.

Some export credits can be characterized as subsidized to the extent that the interest rates are subsidized. Others can be basically based on commercial rates. But the bottom line is that today, for example, although the United States on grains has refrained from reintroducing export subsidies, it has made extensive use, particularly in Asia, of export credits. And basically if you want to sell wheat into Asia today, you're not competitive unless you're able to provide export credits.

So this is something we're reluctantly involved in at the present time. It's something we wish were under international discipline, and certainly we favour putting export credits under international discipline.

Your last question related to the relationship between the WTO negotiations and the free trade agreement to the Americas. There—and this is very much a personal opinion, Mr. Chairman—it would be my view that the really tough negotiations on agriculture would not really start in the FTAA until probably 2003, 2004, and that as a practical matter, by that time we will have known what the outcome of the WTO negotiations on agriculture are.

Therefore I think, at least in my judgment, that the FTA negotiations will follow rather than pre-date the outcome of the WTO negotiations.

• 1625

Mr. Daniel Turp: What about the link between NAFTA as is in its agricultural component and the WTO negotiations? There was a big issue of what treaty prevailed. There was a decision of a panel on that. What is Canada's position when it comes to what treaty will prevail at the end of the negotiation?

Mr. Mike Gifford: Other things being equal, in international law the most recent treaty would prevail. But that really isn't the issue in the case of the so-called tariff rate quotas.

What the NAFTA panel said was that the Canadians were right when the Canadians said the original deal on agriculture with the Americans was to go to free on all tariffs in agriculture but to keep import quotas on our respective sensitive sectors, U.S. dairy and sugar and Canadian dairy and poultry.

Then, subsequently, when the WTO told us that we had to convert these import quotas into tariff equivalents, the panel supported the Canadian view that the fact that we were obligated by our WTO obligations to convert these import quotas into tariffs didn't mean that these tariffs had to be reduced down to zero, because as a member of the Canada free trade agreement all tariffs were supposed to be reduced to zero. The original deal is very clear. The normal tariffs go, but the import quotas remain, and all the tariffication exercise did in the GATT was to convert these import quotas into their tariff equivalents.

So basically the NAFTA panel said to the Americans, you can't get by litigation what you didn't get at the negotiating table originally.

It's not a question of whether the WTO superseded the FTA. What the panel said is that the FTA deal was very clear. You didn't get unrestricted entry to the Canadian dairy and poultry market; what you got was duty-free entry but with a quota. And because that quota was subsequently converted into a tariff equivalent, you just can't say well, snap, because of this other provision that says that all tariffs are supposed to go, you should automatically get these tariff equivalents going to zero.

The Americans did something different with Mexico. When they negotiated with us back in 1986-87, the Americans were quite prepared— in fact, they were the ones who were more concerned than we were about protecting their sensitive sectors. But in the period between then and when they were negotiating with Mexico, they did an 180-degree reversal of their position, and basically they decided to have a comprehensive agreement on agriculture with Mexico whereby there would be absolutely no restrictions on agricultural trade. Even for the most sensitive commodity sectors, for example, sugar for the U.S. and corn for Mexico, they handled that by having 17-year transition periods.

So there are no exceptions to duty-free trade in the U.S.-Mexico agreement, whereas our agreement with Mexico says all tariff barriers are eliminated with the exception of those in the supply-managed commodities, dairy and poultry.

Mr. Daniel Turp: Merci.

The Chairman: Mr. Reed.

Mr. Julian Reed: Thank you, Mr. Chairman.

I have four questions and I think they don't require a lot of time.

One is, do you have any thoughts on the EU never-again policy, which has existed since the Second World War and which has been the basic policy that has brought such extreme subsidization to Europe? That's my first question.

Second, I learned a new term this last year called “cross-subsidization”, and it currently appears that it is being used for one of the aggravating issues that exists at the moment, the importation of this sugar and cream mixture called butter oil from New Zealand. I am told there's a suspicion that there's cross-subsidization regarding air freight, because apparently this stuff is flown into Canada.

• 1630

Third, does biotechnology or its interpretation include hybridization? If it includes hybridization, we've been practising that form of biotechnology since a long time ago, so there's nothing much new. I'm concerned when I hear this business of Europe saying no to biotech-produced canola, because I would defy anybody to identify it chemically from any other kind of canola that was produced by their interpretation of natural means.

Finally, who do you think Canada's allies are going to be in agriculture this time? It was the Cairns Group the last time. Do we have any suspicion of how we're going to be headed?

Mr. Mike Gifford: Mr. Chairman, in Europe towards the end of the war in a number of countries there was, if not outright starvation, certainly severe rationing. Clearly, that concern about not being self-reliant encouraged a lot of agricultural policies that had the very explicit objective of increasing domestic self-sufficiency.

Certainly when the Common Agricultural Policy was formed, the French, who by and large are the most efficient producers of agricultural products in Europe, basically were prepared to accept a much lower price than the Germans. The Germans wanted very high prices to apply across the board. As a consequence, the Common Agricultural Policy was based on high per-unit prices that generated surpluses to such an extent that they went from being major net importers of virtually everything they consumed to being major net exporters, if not the world's largest exporter, of virtually everything they produced. That was a very dramatic result of the type of domestic agricultural policies they had.

The arguments for domestic self-sufficiency maintaining support for the rural sector are a lot more sophisticated today. The current jargon in Europe is to say that governments should support the multifunctionality of agriculture, which really means that farmers should be treated as custodians of the countryside, as well as providing an opportunity for tourism, as well as being agricultural producers. They're basically saying that you should be able to rationalize support to the rural sector in more ways than simply looking at narrow agricultural production.

I think it's fair to say that the Common Agricultural Policy is changing. To be very frank, Commissioner Fischler said very publicly that although his member states' ministers of agriculture say there's no way they're going to accept this reform or that reform, privately they all accept that reforms have to be made to the Common Agricultural Policy. It's a question of how to do it, how fast to do it, and how to modulate it to the various national sensitivities.

I think reform is coming, and I guess that's why I'm moderately optimistic that in the case of export subsidies, if the Europeans in fact do the domestic reforms that Commissioner Fischler wants to do this year or next year, they might be in a position then to agree to eliminate export subsidies. It's because they change their domestic agricultural policies that they'll be able to do that, not because of some international agreement. They have to change their domestic policy in order to be able to agree to phase out export subsidies.

In terms of cross-subsidization, we have this famous or infamous mixture of butter oil, and sugar blends. This stuff is, as I understand, a granular mixture, and most of it is coming in from New Zealand, and most of the customs entries are coming in through Pearson International Airport.

• 1635

I must admit I found it somewhat surprising that this stuff was so valuable that it made sense to air-freight it, but that being said, I guess there's a lot of chilled lamb being air-freighted from New Zealand to Canada, for example. If you have a sort of refrigerated or semi-refrigerated plane, you can ship a lot of other product that on the surface wouldn't appear to make much sense.

But cross-subsidization is usually thought of in terms of, for example, price pooling. If you sell at various prices in various markets, the economists will argue that constitutes cross-subsidization. But in the case of butter oil and sugar blends, presumably the New Zealanders buy sugar from Australia, which is at world price, and they produce butter oil at world price. That mixture is basically a world price mixture, so there's no cross-subsidization as such. Whether they get favourable freight rates depends on how much traffic those planes are carrying and whether or not the carrier is prepared to give them a special deal on certain products.

As for biotechnology hybrids, what's the definition of that? I'm not a scientist, so I'm venturing onto very shaky ground here, but certainly a lot of what's known as biotechnology is nothing more or less than doing what breeders have been doing for hundreds of thousands of years.

So I guess not all of biotechnology is necessarily genetically enhanced products, but when you introduce new traits— For example, in the case of canola, the canola varieties we're talking about are canolas that are now Roundup-resistant because of the introduction of a trait that's not characteristic usually of canola. So it's that introduction of new traits that constitutes genetically enhanced products, whereas biotechnology—hybrid corn is an example, you could argue—is applying techniques to biology.

In terms of allies, in the last round we straddled several camps. For our export interests, we certainly worked very closely with the rest of the Cairns Group group and with the United States. In terms of promoting Canada's position of arguing for the clarification and elaboration of article XI of the GATT, we worked very closely with Japan, Korea, Switzerland, Norway, Finland, and a range of other European countries.

In effect, article XI, using import quotas in support of supply management, no longer exists as a practical matter. Therefore, who Canada's allies will be will depend basically on the negotiating instructions that officials receive from cabinet.

Clearly, in terms of pursuing our export interests, our natural allies are the rest of the Cairns Group and the United States. Those countries that would like to go less far in terms of liberalizing agricultural trade would clearly include such countries as Japan and Korea. In the case of Europe, they're somewhat schizophrenic. The Dutch, British, and Swedes are clearly much more sympathetic to trade liberalization in agriculture than are some of the other member states. So within Europe, they're not homogeneous. They have a range of views ranging from people who almost are closer to the Cairns Group than anybody else to those who basically don't want to change the status quo one iota.

Mr. Julian Reed: Thank you, Mr. Chairman.

The Chairman: Ms. Bulte.

Ms. Sarmite Bulte (Parkdale—High Park, Lib.): I want to talk about the genetically enhanced products or genetically engineered products, but from a totally different perspective: the consumer rights perspective.

• 1640

My understanding is that 5% of our food and food products are genetically engineered. If we're looking to future negotiations and what the future will hold in the whole area of genetically engineered foods, this is going to account for a greater deal.

One of the things consumer groups are concerned about—and they're using the European example—is not to start a debate between scientists about how safe is our food compared to somebody else's. They are concerned about the importance of labelling—simply, is it genetically engineered or not?—and they're looking to Europe as an example.

I understand that in England there is a department store called Iceland, which has food segregated into genetically engineered and non-genetically engineered. What the consumer groups are looking for— When you get into the definition of what is genetically engineered, you can also start with the seed. Has the seed had a toxin or a pesticide used on it? The matter of labelling— There is a growing number of consumer groups in Canada and the United States looking at the importance of labelling. As we go into our grocery stores—in Loblaw's you will see organic foods, which is non-genetically engineered food.

I'm concerned that we're going to rush into something. Is the public consultation going to include the consumer groups, the importance— It is not to debate the health risks or whether this may cause— it's just the right to know that this is not organic.

Mr. Mike Gifford: Clearly, Mr. Chairman, this raises a set of very complex issues. The retail food system in the U.K. is a lot different from that in Canada. Most of it is private brand, and it's private brand to that of Marks & Spencers, for example. Marks & Spencers will insist that they have trace back to the individual farm. In other words, in the U.K. they are well into the retailers having quality control back to the original production point, and some retailers will decide to label their products as being “genetically enhanced” or “may or may not contain genetically enhanced products”.

The concern is not so much whether a retailer decides to do that because he believes his consumers should have the right to know, it's a question of governments imposing mandatory labelling. The concern if you're an exporter is that if there's mandatory labelling, the consumer is left with the impression that somehow there's something wrong with the genetically enhanced product.

The point the exporting countries would make is that nobody, least of all exporters, has any interest in producing an export product that is not safe for the consumer, because they have more to lose than anybody if there's a perception that they're selling an unsafe product.

The issue is that if science has determined the product is safe, how do you on the one hand give the consumer the right to know, and at the same time do that in a way that doesn't carry a negative connotation from the point of view of the seller of the genetically enhanced product? It becomes very complicated, because some people in the U.K. would say “Can't you in Canada separate the genetically enhanced products from the non-genetically enhanced products?” We did that for the first couple of years in the case of canola, but once canola production reached a certain point, it was no longer economically feasible to separate the genetically enhanced from the non-genetically enhanced, unless the British or European consumer was prepared to pay a price premium for having that product physically segregated.

• 1645

If the market's prepared to do that, then as a seller we're more than willing to do that. For example, today the Canadian Wheat Board sells to an individual bakery in the United Kingdom wheat that is grown in a specific part of Canada using specific varieties, and the Wheat Board in effect makes sure producers produce an amount of that variety for this particular customer. But obviously that's custom production, and the U.K. miller pays premium prices for that.

So I think the reality is that the consumer is always right. If you're a seller of agricultural products, you have to produce what it is the market is demanding. And if the market is saying it wants physical identification and separation and it is prepared to pay a premium price—for example, organic food traditionally is sold at a premium—then that's fine.

What is so frustrating from a commercial exporter's point of view is that in the case of getting approval for genetically enhanced product, the system is so chaotic and Byzantine in Europe that it's more by luck than anything that you get a product registered and approved. At the end of the day—it might take you three years—you'll get approval, but for three years you're effectively prohibited from servicing that market, and that's a frustration.

Canadian and U.S. regulatory officials are no less concerned about human, plant and animal health than their European counterparts, but people on this side of the Atlantic seem to have developed a regulatory approval system that's capable of allowing the approvals to come in, be assessed and either rejected or accepted. But there's a log-jam in Europe, and that's our preoccupation.

Ms. Sarmite Bulte: What about going the other way, not through Europe where you say the process—this is what the companies argue too—is very difficult to go down the food chain and get the approval? Is there some kind of middle ground?

Should this be a debate that the Canadian public wants as well? I'm not advocating one way or the other, I'm just aware of this debate that's going on with consumers. Is there some way, instead of going through that process of saying it's approved genetic engineering, to say this is not genetically engineered? Is it worth looking at that?

Mr. Mike Gifford: I think people are struggling to come to grips with this problem. A lot of people say the trouble is that the companies manufacturing these genetically enhanced products have started to develop products that benefit producers in terms of reducing costs. But very few of them benefit consumers in terms of changing the taste or whatever. There are contrary examples—the case of tomatoes coming up from the United States, for example.

By and large the benefits of genetically enhanced products are clearly identifiable to the primary producer, but the benefits are much less clear to the consumer. As more and more products are developed that in effect tailor products to meet consumer preferences, then perhaps there will be more consumer acceptance. These firms will also admit that they just assume that if these products are used, consumers will automatically accept them, and of course that has proven to be wrong.

Mad cow disease doesn't have anything to do with genetically enhanced products, but science got such a black eye in Europe because for years the scientists over there were saying there's no problem, and then it turned out there was a problem. So science has lost a lot of its credibility in Europe when it comes to food products. So that is another part of the problem.

Ms. Sarmite Bulte: It's a very complicated area. I'm concerned that because we're looking at such a small portion of our food and food products being produced through genetics, this is something we're going to have to grapple with as a public in the future.

I have quick second question. On the sanitary and phytosanitary regulations, you said they will be renegotiated at the same time. What is the status right now with our coniferous trees? Wasn't there a problem with the European nematodes in that there was the ultimate threat of always going to the WTO? Is that on hold pending this resolution?

• 1650

Mr. Michael Gifford: Well, you know, basically the Sanitary and Phytosanitary Agreement says that countries can maintain the unabridged right to be able to take whatever action is necessary to protect human, plant and animal health, but you should make these decisions on the basis of science and after a risk assessment, and if don't like the importing country's decision, you can take your dispute to a WTO panel, just as you can over a tariff or a quota.

That's the difference between the old system under the GATT and the new system of the WTO. You have effective dispute settlement now that enables you to take differences of view between an importer and exporter to a third party and get a ruling.

Here I'm again straying out of an area that I'm familiar with. Lumber is not part of the responsibility of the Department of Agriculture and Agri-Food, but my recollection—and you can correct if I'm wrong, Terry—is that this still an ongoing problem with our European friends. They're insisting that all Canadian lumber be debarked completely. If there's any scrap of bark on the lumber when it arrives in Europe, that's been grounds for denying entry for the entire shipment, because of the risk, as they perceive it, of introducing insects that are not endemic to Europe.

Mr. Daniel Turp: Earlier you talked about adjudication being used by the Americans to promote their own interests when they haven't succeeded in obtaining things during negotiations.

What have the Americans been doing since the adoption of the WTO in terms of adjudication, using the panels? And what kind of jurisprudence has developed and will be integrated in the forthcoming treaties and negotiations?

Have they changed their attitude? Have they been more aggressive? What should be expect from the Americans when it comes to more adjudication or less?

Mr. Michael Gifford: Well, typically, and it's a generalization, it's often been said that the U.S. likes to litigate. To their credit, and to our ultimate benefit, the United States so far has been scrupulous in respecting its new obligations under the WTO, and basically, notwithstanding a lot of political pressure, when it comes to actions that are inconsistent with the WTO, they have basically stood up to that political pressure. Because of their belief in the rule of law, they've accepted, albeit reluctantly, the rulings of both the WTO and NAFTA panels, even though in a number of cases those rulings have gone against the United States.

One of the great concerns of other countries outside of the U.S. in the past has been that the U.S. would use their economic clout and superpower status to take unilateral action outside of the international trade rules. When there were no rules governing agriculture, which was sort of pre-WTO, the U.S. could virtually do what it wanted, because there were no effective rules. The U.S. had a waiver, in fact, for most of the GATT agricultural rules, the most important being a waiver on the use of import quotas. So the Americans were never in breach of the GATT rules, because either they didn't apply or they had a waiver from them.

But I can't think of one example since the WTO came into existence where one can fairly say that the United States has been in breach of its WTO or NAFTA agreement. They have not resorted to unilateral action; in fact, quite the contrary. In the case, for example, of their concerns about Canada's dairy export pricing, although it was initiated under this sort of infamous section 301, which is U.S. domestic legislation, they pursued it multilaterally in accordance with their international rights. That is, they asked for consultations with Canada, and when that didn't satisfy, then they took it to a WTO panel. That's a far better system for our dealing with the Americans, either in a NAFTA panel or a WTO panel, than trying to deal one on one with the U.S., when you're negotiating with an economic superpower.

• 1655

I think the dispute settlement system has worked very well. Each of these panels does build up jurisprudence. What's unique in this system and the old system is that under the old system, under the GATT, if a country didn't like the GATT panel it ignored it. That happened. Canada did that, the U.S. did that, the Europeans did that.

Today a participant to a panel cannot block the adoption of a panel report. Now there's a sort of safety valve. The original panel will issue a report and one of the parties can appeal that decision to an appellate body, which is comprised entirely of lawyers and in most cases ex-judges. Basically it's a very narrow interpretation of the legal rights and obligations. The WTO today is much more like a legal contract than it was when it was a lot more loosey-goosey under the GATT, which had more flexibility but less fairness.

The Chairman: I believe Mr. Reed has a question.

Mr. Julian Reed: Yes, just getting back to this phytosanitary thing and the nematode issue with Europe. I know of one lumber company whose exports are limited because they can only air dry, they can't kiln dry, so as a result they're prohibited from exporting to Europe. I wonder if there's not some hypocrisy here, if this is not just a ploy.

When you look back at history and the millions and millions of cubic metres of timber that went from North America in its raw state or its near raw state, the timber ships that were lashed together and sailed over to Europe and went into building the ships of the British navy and all this sort of thing, there were nematodes then. I'm finding it very difficult to rationalize that this is a real concern.

Mr. Mike Gifford: As I said, I'm straying way out of my competency. The bottom line, though, is that often you'll have scientists in the exporting country differing with the scientists in the importing country. Ultimately, if you can't agree, then you take your case to dispute settlement.

For example, in the case of salmon, Australia bans the import of salmon from Canada on the grounds that we have some fish disease they don't want. We figured it's just straight political pressure from salmon producers in Tasmania that is the root cause of the problem. So we've taken Australia to a WTO panel on salmon. Basically that panel will be a very technical panel and will look at all the technical details as to whether the Australian ban is based on science, whether it's based on a risk assessment, and whether it's justified and appropriate in the circumstances.

If you're an exporter, ultimately your recourse is that if you think the other guy is playing games with what would otherwise be a legitimate technical barrier, then you take him to dispute settlement.

Mr. Julian Reed: Should we be doing that kind of thing with lumber?

Mr. Mike Gifford: In the case of lumber, you'd have to ask Jonathan Fried when you get him next time.

Mr. Julian Reed: Thank you very much.

The Chairman: Mike, thank you very much for coming forward to the committee. We appreciate your knowledge and expertise. Over the course of the next few weeks and months, we will be hearing from different groups that have concerns and hopefully we'll invite you back then to let you know their concerns and get your comments on them.

Colleagues, we're adjourned until next Tuesday. We're still trying to narrow a witness for next week and we'll let you know.